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MM Argues "Step-Down" Litigation before the Illinois Supreme Court, while the Issue is Also Addressed in Senate Bill 1208

On behalf of State Farm Insurance Companies and an individual consumer, Momkus McCluskey filed a six-count complaint against Farmers Insurance entitled State Farm v. Farmers, seeking among other things, a determination that step-down clauses violate the public policy of the State of Illinois. On February 18, 2004, Momkus McCluskey attorneys Mark Monroe and Steve Ekker successfully argued before the Circuit Court of Cook County, Judge John Madden, that the provisions in Farmers Insurance automobile insurance policies stepping-down liability limits to the Illinois statutory minimums is void as against public policy. As a result, Judge Madden granted summary judgment in State Farm's favor on the issue.

The provision in question, commonly referred to as a "step-down" clause, permitted Farmers to automatically reduce the amount of coverage afforded by its policies to the minimum limits allowable under Illinois law (bodily injury limits of $20,000 per person, $40,000 per occurrence and $15,000 property damage). Most cases involve a covered vehicle being operated by someone other than the named insured or a blood relative of the named insured who resided in the named insured's household, and thus a "non-resident permissive user".

An example of the effect of such a provision is illustrated as follows: Assume a Farmers' insured purchases a policy of insurance with liability limits of $250,000 per person and $500,000 per occurrence for his or her vehicle. With the step-down clause, when that Farmers' insured lends that vehicle to a sibling visiting from out of state, who becomes involved in an accident, the amount of liability coverage afforded to that sibling would only be $20,000 per person and $40,000 per occurrence, despite the $250,000 per person and $500,000 per occurrence purchased limits.

Farmers appealed Judge Madden's ruling, and on November 3, 2006, the First District Appellate Court reversed, holding that step-downs do not violate Illinois public policy. State Farm Mut. Auto. Ins. Co. v. Illinois Farmers Ins. Co., et al, 368 Ill.App.3d 914, 925-26 (1^st Dist. 2006).

On behalf of State Farm, Momkus McCluskey sought and was granted leave to appeal to the Illinois Supreme Court. Due to the public policy and general importance of these issues to all Illinois insurers, insureds, and accident victims, the firm was extremely pleased that the Illinois Supreme Court accepted State Farm's Petition for Leave to Appeal ("PLA") on January 24, 2007, meaning that the Illinois Supreme Court would entertain arguments on the issue. A story regarding the PLA appeared on the front page of the December 6, 2006 edition of the Chicago Daily Law Bulletin.

The appeal to the Supreme Court was fully briefed by the parties, and additionally, the Illinois Trial Lawyers Association (ITLA) filed an amicus brief in support of State Farm's position that step-downs violate public policy.

On May 24, 2007, Mark Monroe argued before the Illinois Supreme Court on behalf of State Farm that step-downs violate public policy, based upon a line of cases beginning with State Farm v. Universal Underwriters, 182 Ill.2d 240 (1998), and the Illinois legislature's acquiescence in this line of decisions previously rejecting step-downs. Edward Psenicka argued in rebuttal on behalf of State Farm. On September 20, 2007 the Illinois Supreme Court held that step-downs do not violate public policy and are currently enforceable, despite that the Illinois Legislature has invalidated step-downs to be effective January 1, 2008 via SB 1208.

Senate Bill 1208 states:

Section 5. The Illinois Insurance Code is amended by adding Section 143.13a as follows:

(215 ILCS 5/143.13a new)

Sec. 143.13a. Coverage for permissive drivers. Any policy of private passenger automobile insurance must provide the same limits of bodily injury liability, property damage liability, uninsured and underinsured motorist bodily injury, and medical payments coverage to all persons insured under that policy, whether or not an insured person is a named insured or permissive user under the policy. If the policy insures more than one private passenger automobile, the limits available to the permissive user shall be the limits associated with the vehicle used by the permissive user when the loss occurs. (Emphasis supplied).

Section 99. Effective date. This Act takes effect January 1, 2008.

SB 1208 goes well beyond the arguments advanced in State Farm v. Farmers, as that case was limited to requiring the same liability limits only. SB 1208 also covers property damage, UM and UIM, and medical payments coverage limits. SB 1208 passed unanimously in both the Senate and House, and was signed into law by the Governor in August 2007. However, SB 1208 is effective on January 1, 2008, and therefore will not be applied retroactively to void step-downs before January 1, 2008. Therefore, step-downs will remain enforceable before, but not on or after January 1, 2008.